Collections on Credit Report and USDA Loan Pre-Approvals
Underwriting must follow GUS to determine if a collection account must be paid. Typically GUS will require the following:
- If the credit report show a cumulative balance of $2,000 or more for collection accounts:
- The debt(s) must be paid in full prior to or at closing, or
- Payment arrangements must be made with the creditor and the monthly payment included in the DTI, or
- A monthly payment of 5% of the outstanding balances of each collection must be included in the borrower’s DTI.
- While all collections required by GUS must be paid, RHS grants the lender/underwriter the authority to require any collection (whether GUS recommended or not) to be paid prior to or at close.
Can you get a Kentucky USDA Loan when the borrower has experienced a major negative credit occurrence such as a bankruptcy, foreclosure, or short sale.
The Kentucky USDA Rural Loan program requires a minimum of three years from the date of a bankruptcy, foreclosure, or short sale to the borrower being eligible for a USDA Loan. For both Chapter 7 and Chapter 13 bankruptcies the borrower must allow three years from the discharge date prior to submitting a new loan request. If the bankruptcy included a property, whether a primary residence or investment property, the earliest a new loan can be obtained is based on Kentucky USDA Loan short sale and foreclosure guidelines.
When the borrower experienced either a short sale, foreclosure, or surrenders the property through the bankruptcy process, there will be a three year waiting period between the date of property transfer from the borrower to a new entity, and the date the new loan application can be processed. The most conservative stance by a Kentucky USDA Loan Underwriter for defining the date of the negative occurrence is the legal recorded transfer date, which is the date the property has been transferred out of the borrowers name and either back to the bank that holds the mortgage note or a subsequent home buyer. From this date the borrower will not be eligible for a USDA Loan for a period of time no less than three years.
However, one of my investors will allow a Chapter 7 bankruptcy discharge date to be considered the date of foreclosure, provided the borrower didn't re-affirm the mortgage liability. This differs from when the property transfer date is recorded at the County Clerks Office. This is especially helpful in circumstances where the home owner legally removed their ownership rights to a property, through a Chapter 7 bankruptcy, but the mortgage lien holder was slow to transfer the mortgage back into the name of the bank or sell the property.
If the foreclosed property was secured by a government backed mortgage loan such as a Kentucky FHA or Kentucky VA Loan, the property transfer date is no longer considered relevant. The date that now becomes important is the date when the mortgage lender that held the mortgage note received compensation for their mortgage insurance claim through either The Department of Housing and Urban Development for a FHA Loan or The Veterans Administration for a VA Loan. The date of the mortgage insurance claim is identified through a CAIVRS search, which is required on all Kentucky USDA Loans. We can obtain the CAIVRS number through GUS when we run your loan for pre-approval through the automated underwriting system at USDA .
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Joel Lobb
Mortgage Loan Officer
Mortgage Loan Officer
Individual NMLS ID #57916
American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364
Cell: 502-905-3708
Fax: 502-327-9119
Fax: 502-327-9119
